Fitch Makes It Unanimous, Cuts Puerto Rico To Junk

By Michael Aneiro

Exactly a week after S&P started a cascade of downgrades for Puerto Rico, Fitch Ratings just made it a unanimous decision, becoming the last of the three big rating agencies to cut Puerto Rico’s credit rating to junk, and acknowledging that the other two downgrades played a part in its decision.

Like Moody’s, Fitch cut Puerto Rico general obligation bond rating by two notches, to BB from BBB-, versus a one-notch downgrade from S&P. Like S&P (but unlike Moody’s) Fitch did not cut its rating on bonds issued by the Puerto Rico Sales Tax Financing Corporation, known by its Spanish acronym COFINA, which are secured by the commonwealth’s sales and use tax. Fitch said those bonds are “insulated from the commonwealth’s general credit strain” and “their ratings are driven by economic and revenue performance.”

Here’s Fitch:

Fitch placed the GO and related ratings on Negative Watch in November 2013, citing the challenge facing the commonwealth in maintaining financial flexibility in light of the deterioration in capital markets access. Recent downgrades have triggered new liquidity requirements and lowered expectations for the market available for the commonwealth’s debt going forward, though there have been no significant negative developments regarding the commonwealth’s finances or economy since November. In the context of other credit challenges related to a weak economy and elevated liability levels, Fitch believes that these additional hurdles preclude the commonwealth maintaining an investment-grade credit profile.

“We are disappointed with Fitch’s decision, though we are pleased that it has recognized Puerto Rico’s quick and decisive response to challenges that have arisen in recent years, our significant progress in addressing longstanding fiscal and economic issues, and the uniquely strong pledge our Constitution provides for our general obligation credit.”

The GDB, Treasury and OMB will hold a joint webcast on February 18, 2014 at 2PM EST to discuss the Commonwealth’s fiscal and economic plans and progress, and to update investors on its financing plans.

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.